BGC Partners: An Appealing Speculative Play

| About: BGC Partners, (BGCP)

BGC Partners Inc. (NASDAQ:BGCP), formerly eSpeed, Inc., is a global inter-dealer broker specializing in the brokering of a range of financial products globally, including fixed income securities, interest rate swaps, foreign exchange, equity derivatives, credit derivatives, commodities, futures, structured products and other instruments. The Company provides a range of services, including execution, clearing, processing and other back office services. Through its eSpeed and BGCantor Market Data brands, it also offers financial technology solutions and market data and analytics related to select financial instruments and markets.

On April 1, 2008, The Company completed the merger of BGC Partners OldCo and eSpeed, which combined BGC Partners OldCo's, voice brokerage business and Market Data solutions with eSpeed's electronic marketplaces and trading technology expertise.

Often when shares decline to prices below $3 it is a sign of severe problems. Usually a yield that is way above market rates is a 'red flag' that should send you running the other way. Sometimes it is an opportunity to make huge gains.

I've taken a small nibble of BGC Partners despite the known risks. As noted above in the company description (provided by MSN MoneyCentral), BGCP is the result of the April 2008 merger of eSpeed and OldCo. The company has been posting nice profits this year. It earned $0.21, $0.17 and $0.08 in the first three quarters of 2008 (excluding a $0.46 one-time charge from pre-merger redemption of partnership units). Full year estimates of continuing operations are now at $0.62 and $0.49 - $0.51 for 2008 and 2009 respectively.

The company has stated their intention to pay roughly 75% of its after-tax distributable earnings in the form of dividends. They actually paid $0.13 in Q3 and $0.10 in Q4 so far. Based on the approximately $0.50 EPS estimate for next year it appears that the current 10 cent a share quarterly payout can be continued.

On shares now trading at $2.44 that's a 16.39% current yield.

BGCP has been actively retiring shares. Between September 9 and September 22, 2008, it retired a total of 3,163,072 shares at an average price of $4.82 - well above today's quote. As of September 30, it had $43 million remaining from its original $100 million repurchase authorization.

At quarter's end, BGCP had cash and equivalents of $361.5 million with total long-term debt of $150 million. Year-end book value should come in around $3.24/share.

There was a small open-market insider buy on December 11th and no recent insider sells.

With the shares trading below book value, under 5 times expected earnings and yielding in the double digits, I'm willing to take a small bet on a potentially big percentage gain.

This small-cap stock is covered in the standard edition of Value Line and offers option trading. Those are attributes not typically associated with such a low-priced issue. If this company can regain its stature, who knows where the shares might go?

As noted in the 52-week range, BGCP shares hit a 2008 high of $12.97 leaving room for a nice move on even a partial recovery to its price of only eight months ago.

Disclosure: Author owns shares of BGCP.